Expert: Regan Shinski - 8/18/2010

Question
I recently fell on hard times and it caused my credit score to drop
tremendously a 250 point difference. I have a car loan that I'm upside
down on and the car is crap. My question is should I let my car get
repossessed and let it just be a negative showing seeing that my score is
now in the 400 range. Is there a way to let them repossess it without
paying the difference.

Answer
Hi Jada:

I can't answer this question for you as it really is a deeply personal decision.  Strictly from a credit score standpoint, you are correct that with a score at 400 a repossession won't have as much of an impact on the score than if the starting score was higher.  However, it's not the easiest thing to remove through credit repair and it's the fact that it might be there 3, 5, or 6 years from now that will affect you.

More importantly, you are at risk of being sued for the shortfall.  There is no way to predict if you will be sued and only two ways to prevent it with certainty:

Either pay the shortfall or enter into a new written agreement after the repo to pay the shortfall.  The second option is to file bankruptcy and discharge the debt.

It's best to try and deal with this as it happens rather than file bankruptcy now.  The reason is there is a chance you may not be sued and very slight chance it may not even report or will be removed through credit repair.  You can always file bankruptcy or enter into new agreements as the process evolves.  

It then becomes critical that you respond to each letter as you receive it.  Don't let a 30 day validation window expire if you receive a collection letter that says something like "if we don't hear from you within 30 days...", don't ignore threats of lawsuits or court summons.  These types of decisions lead to default judgements in much higher amounts.

I'm getting a little sidetracked but my point is if you let this go it is going to be an ongoing issue that requires your vigilance if you want to try and protect or repair your credit.  You can ask new questions as they arise as it's difficult to get into all scenarios in this forum.

Good luck in whatever decision you make.

Regan